Credit-default swap spreads on European telecom companies widened last week as investors took profit on their positions. Protection on France Telecom widened to 90/95 basis points on Thursday from 73bps the previous week, according to a trader. The move drove in spreads across the board by around 5bps, noted the trader.
Trading volumes doubled as hedge funds, proprietary desks and some asset managers closed out positions, according to traders.
Standard & Poor's rates France Telecom BBB and has it on positive outlook and Moody's Investors Service puts it at Baa3. Guy Deslondes, European head of the telecom group at S&P in Milan, said, "We have a positive outlook on this company so we think the credit quality can go up." France Telecom delivered good first half results, with earnings before interest, taxes, depreciation and amortization higher than the market had predicted and high cash flows.
Deslondes said France Telecom needs to continue improving its free cash flow to be upgraded. It reported an annualized free cash flow of around EUR4 billion (USD4.5 billion) in its first half results, which is twice its 2002 figure. Telecom Italia and Deutsche Telekom, however, have free cash flows of EUR5-7 billion.
Five-Year Credit Protection On France Telecom
